CHAPTER 7

THE DIFFUSION OF PRICE-LEVELS

Current economic theory is permeated by the notionthat the Purchasing Power of Money or ConsumptionStandard, the Wholesale Standard, the InternationalStandard, etc., etc., whilst doubtless theoreticallydistinct, all come to much the same thing in practice.It is the prevalence of this belief which explainsthe common habit of using such index-numbersas Sauerbeck’s and the Economist's to measure themovements of price-levels generally, and, in recenttimes, the illegitimate extension of the Purchasing-Power-Parity Theory of the Foreign Exchanges tothe Purchasing Power of Money from its legitimateapplication to the International Standard. I do notbelieve that Great Britain would have returned in1925 to the Gold Standard at the pre-war parity ifit had not been for the habit of regarding the Whole-sale Standard as a satisfactory indicator of generalpurchasing power.

This notion has flourished under a combinationof influences. In the first place the influence of the“ normal ” theory of value has encouraged a readi-ness to ascribe to actual conditions the attributes of“ a perfect market ”. It is argued that in stableconditions different price-levels stand in definedrelationships to one another, and that, if theserelationships are temporarily disturbed, neverthe-less forces will be set up tending to restore the

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